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Electronic terms of service govern billions of relationships worldwide, whether a user is joining a social media service, shopping online or accessing a blog. In each case, a binding contract is formed, the terms of which are usually set out in the website’s “terms of service” . But when a contract is made over the internet and there is later a dispute, whose law governs? What is the “forum” for the resolution of the dispute? What if the contract expressly designates a specific jurisdiction as the appropriate “forum”? In Douez v Facebook, Inc. (“Douez”), the SupremeCourt of Canada refused to uphold the forumselection clause contained in Facebook, Inc.’s terms of service.

Background

The case involves Facebook, Inc. (“Facebook”) and the representative plaintiff in a proposed class action, Ms Deborah Douez. When Ms Douez joined and continued using Facebook, she agreed to terms of service which included committing to bring any claim against Facebook exclusively in Santa Clara, California.

Ms Douez’ dispute with Facebook started when she found her name and image being used in Facebook’s “Sponsored Stories” product. She initiated proceedings under BC’s Class Proceedings Act with a proposed class of the approximately 1.8 million British Columbians who appeared in Sponsored Stories. The claim was based on Section 3(2) of BC’s Privacy Act:

(2) It is a tort, actionable without proof of damage, for a person to use the name or portrait of another for the purpose of advertising or promoting the sale of, or other trading in, property or services, unless that other, or a person entitled to consent on his or her behalf, consents to the use for that purpose.

Facebook brought a preliminary motion to dismiss the claim, citing the forumselection clause, which read as follows:

You will resolve any claim, cause of action or dispute (claim) you have with us arising out of or relating to this Statement or Facebook exclusively in a state or federal court located in Santa Clara County. The laws of the State of California will govern this Statement, as well as any claim that might arise between you and us, without regard to conflict of law provisions. You agree to submit to the personal jurisdiction of the courts located in Santa Clara County, California for purpose of litigating all such claims.

A narrow 4-3 majority of the Court found that Facebook could not rely on its forumselection clause.

The Court did unanimously affirm that forumselection clauses should continue to be considered under the test established in Z.I. Pompey Industrie v ECU-Line N.V., 2003 SCC 27 (“Pompey”). The Pompey test involves two steps. First, the party seeking to rely on a forumselection clause must prove that it is clear, valid and enforceable as a matter of contract law. Second, once the forumselection clause is accepted as valid, the party asking the Court to not enforce the clause needs to show a “strong cause” for doing so based on “all the circumstances.”

The Court’s consensus ended at Pompey. Three members of the Court, Justices Karakatsanis, Wagner and Gascon, decided that Facebook had satisfied the first step of Pompey and that the forumselection clause was valid. However, they found Ms Douez had shown a strong cause for not enforcing the clause.

The strong cause was based on two main factors. First, the power imbalance inherent in a unilaterally imposed contract (known as a contract of adhesion) between one individual consumer and one of the largest companies in the world. This power imbalance was increased by the fact that “unlike a standard retail transaction, there are few comparable alternatives to Facebook.”

Second, the Privacy Act was described as “quasi-constitutional”, because it was intended to protect the privacy rights of individuals. The decision explained the importance of adjudicating constitutional and quasi-constitutional rights in Canada:

Canadian courts have a greater interest in adjudicating cases impinging on constitutional and quasi-constitutional rights because these rights play an essential role in a free and democratic society and embody key Canadian values. There is an inherent public good in Canadian courts deciding these types of claims. Through adjudication, courts establish norms and interpret the rights enjoyed by all Canadians.

In addition to the power imbalance and the quasi-constitutional nature of privacy legislation, the three Justices cited two additional factors. First, it was in the interest of justice for the case to be adjudicated in BC, where there Privacy Act would be enforced and the Court would be well-positioned to understand the intention of the Legislature. The decision also cited the “comparative expense and inconvenience” of advancing the claim in BC, rather than California, which again favored a strong cause.

A strong cause was not even required for Justice Abella, who wrote a separate decision that ultimately “broke the tie” amongst the seven justices and allowed Ms. Douez’ appeal to succeed. She found that Facebook had not met the first Pompey step of showing the clause to be enforceable as a matter of contract law. Justice Abella concluded that the forumselection clause was void relying on public policy, inequality of bargaining power and unconscionability.

In a dissenting opinion, Chief Justice McLachlin and Justices Moldaver and Côté were prepared to enforce the forumselection clause, finding that Ms Douez had not shown a strong cause.

Impact for Businesses

Forumselection clauses are still enforceable, even if they are not a silver bullet against being brought into litigation in unexpected places. Had Ms Douez been advancing a claim that did not impinge on “constitutional and quasit-constitutional rights” like those engaged in the Privacy Act, the forumselection clause may have been upheld. Indeed, six out of seven SupremeCourt Justices were prepared to enforce Facebook’s forumselection clause, save for the existence of a “strong cause” in this instance.

When engaging with personal information, consulting local privacy counsel is a must. Privacy legislation varies from province to province and failing to appreciate even slight differences can result in class action claims.

Impact on the Future of Internet Law

The only thing that can be said for certain is that the interaction of the internet and the law is likely to produce more decisions like Douez. In fact, the SupremeCourt just released Google Inc. v Equustek Solutions Inc. et al., which addresses if and when a Canadian court can order a search engine to delist certain websites globally.

Further, Douez is unlikely to be the last word on the specific issue of forumselection clauses. The Pompey test may open future debates about “strong cause” in the context of consumer contracts. The opinions of the divided Court in Douez could be used to provide supporting arguments for both sides in a situation where the facts are just slightly different.

Lastly, this decision is just the end of the first chapter of the Douez saga. Facebook’s preliminary motion was rejected but the class action has yet to be certified, so there is more internet law to come.